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Amortization Schedule
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The amortization calculator is a useful tool for determining the breakdown of loan payments over time. Whether you plan to take out a mortgage, vehicle loan, or personal loan, this calculator will show you how each payment will be divided between principal repayment and interest. It simplifies difficult financial calculations, allowing you to see the overall cost of your loan and how long it will take to repay.
Enter the loan amount, interest rate, loan term, and beginning date into the amortization calculator to obtain a complete amortization schedule. This schedule breaks down each payment, indicating which amount goes to interest and how much goes to principal, providing you a clear view of your loan's progress over time.
Our online amortization calculator can help you save time and avoid difficult computations. These tools will compute monthly payments and generate a detailed plan for you.
What is amortization?
Amortization is the process of progressively repaying a loan or spreading the cost of an intangible asset over time. It is used in two main contexts.
Loan amortization: This is the steady repayment of a loan over time, typically with fixed payments. A portion of each payment goes toward interest, while the remainder reduces the principle (the original loan amount). Over time, the amount applied to the principle increases while the amount applied to interest drops.
Amortization of intangible assets: In accounting, this is the practice of spreading the cost of an intangible asset (such as a patent, trademark, or goodwill) throughout its useful life. This enables organizations to spread the cost of these assets over time rather than incurring it all at once.
In all circumstances, amortization helps to spread out payments or costs over time.
How do I calculate amortization?
To calculate amortization, divide the loan into equal installments that cover both the principal (the amount borrowed) and interest over a set period of time. Each payment is divided into two parts: interest and principal reduction. Here is how to calculate it:
1) Gather Key Information:
Loan Amount (Principal): The total amount borrowed.
Interest Rate: The annual interest rate (in decimal form, so 5% = 0.05).
Loan Term: The length of the loan (in years).
Payment Frequency: How often payments are made (e.g., monthly, quarterly).
2) Use the Amortization Formula:
The formula for calculating each payment is:
M = [P x r (1 + r)n] / [(1 + r)n -1]
Where:
- M = Monthly payment amount
- P = Loan principal (amount borrowed)
- r = Monthly interest rate (annual interest rate divided by 12)
- n = Total number of payments (loan term in years multiplied by 12 for monthly payments).
3) Build an Amortization Schedule:
An amortization schedule shows how each monthly payment is split between interest and principal, and how the loan balance decreases over time.
Interest Payment = Remaining Loan Balance × Monthly Interest Rate
Principal Payment = Total Monthly Payment - Interest Payment
New Balance = Previous Balance - Principal Payment
Repeat this for each payment until the loan is fully repaid.
Using an online amortization calculator allows you to save time and avoid complex computations. These tools will compute monthly payments and provide a full plan for you.
How to use amortization calculator?
Using the online amortization calculator tool is really straightforward. First, in the calculator, locate the "Loan Amount" field and enter the total amount borrowed (the principal). Then select the loan term, which relates to the length of time you intend to repay the loan. This can be in years (for example, 15 years, 30 years), or months, so select and input the appropriate number.
Then, in the "Interest Rate" field, enter the loan's annual interest rate. Make sure you input it as a percentage. For example, if your interest rate is 4.5%, type 4.5. In the amortization schedule, select the month or year you want to calculate on a monthly basis.
Once you've supplied all of the necessary information, click the "Calculate" button. Now, our amortization calculator tool will process the input and provide the results. This simple application allows you to visualize your loan repayment arrangement and make more educated financial decisions.
